E-commerce firms' explosive growth comes to end

Coupang's logistics center in Bucheon, Gyeonggi Province / Yonhap

By Kim Jae-heun

Local e-commerce companies are starting to see their sales growth stagnate this year, amid intensifying competition as more firms enter the rapidly growing online retail sector, according to industry analysts, Friday. E-commerce operators had previously been growing by at least 20 percent to 30 percent each year, but the rate was found to have slowed to 12 percent in February from a year ago, according to data released by Statistics Korea.

This year, the companies are working on improving their profitability to continue expanding or planning for initial public offerings (IPO) to secure funds amid intensifying competition.

Coupang, the country's largest e-commerce firm established in 2010, set a new sales record of 22 trillion won ($17.8 billion) last year. The company has grown by nearly 30 percent every year based on its overnight delivery system with some 100 distribution centers around the country.

Its losses also accumulated to over 6 trillion won due to construction costs for more logistics centers, but it still plans to build more. In order to do so, it has to make a turnaround by 2024. This is why it has increased its paid membership fees for both newcomers and existing users from 2,900 won to 4,990 won. Its food delivery service Coupang Eats also changed its commission fee system in February to charge 9.8 percent of the ordered food price.

SSG.com, Shinsegae Group's e-commerce unit, showed 5.71 trillion won of gross merchandise value in 2021, up by 22 percent year-on-year. This is a notable achievement considering that local firms averaged 15.7 percent growth in the same period. However, SSG.com is concerned about the flagging business of eBay Korea which it acquired for 3.4 trillion won last June. It is failing to create big synergy between eBay Korea and its other retail units.

“An IPO is the key to SSG.com's breakthrough this year. The company has to go public and secure funds to continue its business expansion,” an industry official said.

Lotte Group's online shopping mall Lotte ON is still struggling to make its presence known in the e-commerce scene. Its revenue showed a 22.7 percent increase in the fourth quarter of last year, but there was no prominent driving force. Lotte Group Chairman Shin Dong-bin scouted Na Young-ho, a former vice president of eBay Korea, to lead Lotte On's online business reform.

“The competition in the local e-commerce scene is getting severe every year, but the opportunity for growth still there. Once the online market gets saturated, a company that owns both online and offline retail channels will have the advantage,” Kiwoom Securities researcher Park Sang-joon said.